The iPod
Effect
Now you see it, now you don't. All sub-visible phenomena have this
mysterious quality to them. Sub-visible not just because Apple's
hot new sensation, the handy little iPod, makes its physical presence
felt so discreetly. But also because it's an audio wonder more than
anything else. Expect more and more handheld gizmos to turn musical.

Legal compliance audit services offer
good business value. They just need a warmer reception from businesses.

By Nitya Varadarajan

The right move: Chess Management Services'
Karti Chidambaram

Routine
ho-hum business can be risky for no reason other than the laws that
govern the activity. This is what a company in Chhattisgarh discovered,
to its alarm. It was blissfully drawing ground water for its needs,
and liberally too, without so much as measuring the quantity. It
was work as usual-till it very nearly found itself at the legal
mercy of the local community.

Faced with an objection, the firm would've
been in a bind. This, for the simple oversight of not installing
a water meter to show that it was drawing less water than the state's
permissible limit. Before anything could happen, though, the firm
got pre-emptive legal advice from Chess Management Services, a law-specialised
business advisory run by Karti Chidambaram, who is also the son
of current Finance Minister P. Chidambaram.

Need For Legal Eagles

Chidambaram has been out to revolutionise how
business complies with the law for quite some time now. Some four
years ago, he started myvakil.com, offering online legal services.
A case on legal risk management later, two years ago, he started
Chess Management Services. The potential was too tempting to pass
up. "The difference in the services we provide is that it is
proactive in nature," says Chidambaram, "we teach companies
to avoid unnecessary court cases by ensuring total legal compliance.''
Failure to comply with the law is a business risk, of course, but
companies often fail to see the non-legal risks they run that could
tip them over into a legal mess.

"Typically," says V. Sivakumar, a
lawyer who worked with Chess Management and Kochhar & Co. before
setting up his own practice, "most companies have in-house
legal departments that are only into fire-fighting-issuing 'show
cause' notices for non-payments, challenging fines, etc." These,
he adds, "end up as extensions of accounts departments"-too
used to the daily grind to think beyond their templates, and with
no broader area expertise.

Vinod Surana, Partner at Surana & Surana,
another law firm, agrees. Most legal departments are barely aware
of the latest legislation on corporate governance, whistle-blowing
and much else. The reason? "It is difficult and tedious enough
to manage the compliance within the 200 known laws that come within
the ambit of the Factories Act, ESI Act and so on," says Surana,
"to worry about the constant inflows of new amendments relating
to environment issues or sexual harassment, for instance."

KNIGHT IN ARMOUR

» Businesses
often break the law without intending to. They just don't know
better» Getting
a legal prophylactic makes fine business sense. It's good risk
management» Legal
compliance audit services are now available that add that sheath
of protection

Lack of process standardisation is often at
the core of legal risks. "We have been grappling with this
situation across our factories and attempting to set up some standardisation,
but we are still not satisfied with the kind of checklists that
we have set up,'' admits a senior executive at the Rs 850-crore
Rane Group, an auto ancillary business. Shasun Chemicals, the world's
largest maker of the drug Ibuprofen, meanwhile, proclaims itself
satisfied with the recommendations of Chess Management, the "external
examiner", as the legal department spokesperson calls it. It
pays to have an outsider look in: this is the logic that ensures
cooperation between the external and internal legal professionals.

Divergent points of view are common. Sai Chandravadhan,
General Manager, Chess Management, relates an incident of a company
willing to pay a pesky little Rs 250 fine for fire safety negligence
to an inspector after a fire broke out. Chess stopped the move,
advising the company that leaving the charge uncontested would be
a clear admission of negligence, which would free its fire insurer
of any payment obligation. Oh, said the company. It's all about
foresight.

Audit Discipline

The way Chess Management does it, the legal
compliance audit is a five-step process. The audit checks survival
issues which could call for crisis management, routine systems that
could cause trouble and management policies that might be risk-laden,
before running a review of the functioning of critical processes,
and, as the last step, instituting transparency at all levels of
operation. As the audit proceeds, management involvement needs to
keep going up, especially since the transparency part involves such
collar-heating matters as business conduct, ethics, information
sensitivity (even insider trading) and whistle-blowing.

It is trickier in practice than it looks on
paper. While awareness of this sort of legal compliance audit is
growing, most companies still prefer to keep the legal gaze peripheral.
Many want to stop with the due diligence bit, or allow scrutiny
only of specific problems that already stand identified. The idea
of a full checkup still bothers many.

Multinationals tend to be more receptive to
the audit, in the experience of Surana, whose firm uses an audit
similar to that of Chess outlined above. Indian companies? They
reluctantly admit to a fear of finding themselves riddled with compliance
risks, "which is a fair start" as Surana sees it. After
all, getting a legal prophylactic is sensible business.

"Indian companies are more interested
in doing a legal compliance audit when they are going to merge with
somebody else or when they need overseas investors," observes
Dorothy Thomas of Kochhar & Co., "The valuation goes up
if there is 100 per cent compliance.''

There are other global pressures, too. Overseas
clients, for example, do not want anything sourced from any vendor
using child labour. "We have to be proactive at every level,"
says Chidambaram, "and anticipate changes in law, locally and
internationally." The business process outsourcing (BPO) industry,
for instance, needs to prepare itself for future legal wrangles
that could possibly involve work standards and employee unionism.
As awareness of business' relationship with the law grows amongst
people at large, so might litigation. The world's freest markets
also tend to be highly litigious. Complacency is too risky.